Netflix and Comcast Reach Internet Connection Agreement

Todd Spangler

Comcast and Netflix announced a multiyear network-interconnection agreement, under which the Internet streaming company is paying for direct access to the cable operator's network -- promising better video quality for Comcast broadband subs.

The financial terms of the pact are not being disclosed. However, a source familiar with the arrangement confirmed a report by the Wall Street Journal that Netflix is paying Comcast.

"This is pretty much like any other interconnection agreement," the source said. Comcast is not co-locating Netflix-supplied servers in its network under Netflix's Open Connect content-delivery network program, this source added, although the video traffic is in fact handed off to Comcast through the Netflix CDN. Nor is the agreement a "peering" arrangement, in which two networks agree on a framework for exchanging Internet traffic, according to the source.

Comcast customers experienced a steady drop in bandwidth to Netflix's servers over the course of 2013. In January 2014, the average connection speed of Comcast customers to Netflix was 1.51 megabits per second, according to Netflix's measurements -- down from 2.01 Mbps in January 2013. Overall, Netflix streaming video represents close to one-third of all downstream Internet bandwidth used during peak hours in North America, according to equipment provider Sandvine.

For Comcast, the deal with the No. 1 subscription-video service may be designed in part to show policymakers that it's being a good actor on the broadband stage -- the company faces regulatory vetting of its proposed $45 billion takeover of Time Warner Cable. That deal, if approved, would create a TV and broadband powerhouse spanning roughly two-thirds of the U.S. and serving more than 30 million customers.

But the main driver behind the agreement was that both Netflix and Comcast wanted to work together in a way that would benefit their mutual customers. The upside of a joint solution "outweighed any pain of compromise" for both Comcast and Netflix, said another source familiar with the deal.

Comcast and Netflix said they have been "working collaboratively over many months" to establish a more direct connection. The deal will "provide Comcast's U.S. broadband customers with a high-quality Netflix video experience for years to come," the companies said in a joint statement released Sunday.

Comcast is not granting Netflix any preferential network treatment under the agreement, according to the companies' joint announcement.